In the late summer of 1984, the CIA faced what secret documents called the "potential for disaster." Congress was debating a full cutoff of funding for the Reagan administration's covert Contra war in Nicaragua. At that delicate political moment, legal proceedings in a major drug bust in San Francisco threatened to publicly link CIA-Contra operations with cocaine trafficking.

A CIA official summed up the Agency's concerns over publicity this way: "What would make better headlines?" The agent, identified only as Ms. Jones, told investigators that the CIA quietly intervened in the case because it could have had an "explosive" impact on the Agency's mission.

The "Frogman Case" - so named because scuba divers were caught ferrying $100 million worth of cocaine from a Colombian freighter at San Francisco's pier 96 - was California's biggest drug bust in the early 1980s.

More than 50 traffickers were arrested, among them two Nicaraguans. At a safe house belonging to one of them, Julio Zavala, authorities seized $36,020 in cash from a bedroom night stand. As first reported in a March 1986 San Francisco Examiner story by Seth Rosenfeld, and again in the San Jose Mercury News' "Dark Alliance" series, the U.S. Attorney's Office returned the money after Zavala produced letters from Contra leaders in Costa Rica claiming they had given the funds to him to purchase equipment in the United States.

For years, U.S. officials denied any impropriety in the case. After the San Francisco Examiner story ran, U.S. Attorney Joseph Russoniello wrote an angry letter to the editor claiming that he had returned the money because "it made no economic sense" to send attorneys to Costa Rica to take depositions from Contra leaders. He vehemently denied that any "higher ups" had intervened.

Russoniello's successor, William McGivern, was interviewed by the Los Angeles Times in its analysis of Gary Webb's work in "Dark Alliance."

"No one ever said, 'Don't go after a case,'" McGivern maintained.

The release of the Justice Department and CIA inspector generals' reports (see article at left) has exposed an extraordinary cover-up. According to declassified memorandum and cables, and interviews with key players, the CIA acted to block "public disclosure of allegations that CIA-provided money was being diverted into, or that CIA assets were involved in, the drug trade."

To stop Zavala's lawyers from trying to depose CIA "equities" in Costa Rica, the Agency dispatched one of its top lawyers, Lee Strickland, to San Francisco in August 1984 to meet with Russoniello's deputy Mark Zanides. The two had an "opaque conversation."

Strickland, according to the Justice Department report, was "reluctant to give his name and his government affiliation." Strickland stated that the CIA "would be 'immensely grateful' if plans to take the deposition were dropped." In an interview with the CIA's Inspector General's Office, Strickland stated that he "may have suggested that the money be given back to Zavala."

An August 24, 1984, cable, drafted by Strickland, stated that the CIA had made a "discreet approach" to the U.S. Attorney's office in San Francisco, and at Strickland's request, "the U.S. Attorney had agreed to return the money to Zavala. I was for this reason that the scheduled depositions in San Jose [Costa Rica] have been canceled."

In a cover memo to the cable, Strickland wrote that while allegations in the Frogman case might be "entirely false," there were "sufficient factual details which could cause certain damage to our image and program in Central America."

The Justice Department Inspector General's report concluded that "the credible evidence suggests that the claim that the money I belonged to the Contras was no more than a ploy by a drug trafficker to salvage some of his drug profits."

On Sept. 27, 1984, Russoniello's office made out a cashier's check to Zavala and one of the Contra leaders. The amount, $36,800, apparently included accrued interest.

Thus, in what is perhaps the ultimate irony, the Frogman episode stands as a documented case of drug money going to the Contras - via the U.S. government.